EUR/USD extended Monday’s rise of over 100 pips, adding gains in Tuesday’s Asian session. It rose for an eighth straight day, reaching about 1.1765–1.1770, its highest level since early March.
After peace talks failed over the weekend, markets continued to move towards risk assets amid hopes of further Iran diplomacy. US Vice President JD Vance said talks had made meaningful progress, despite no breakthrough, which weighed on the US Dollar.
Dollar Weakness And Risk Appetite
Uncertainty about future US Federal Reserve interest rate moves also kept the Dollar near its lowest level since early March. At the same time, shipping risk linked to the Strait of Hormuz limited risk appetite.
US President Donald Trump said a US Navy blockade of the waterway had started, and threatened action against Iranian warships near it. Iran warned it could target all ports in the Persian Gulf and the Gulf of Oman, keeping tensions elevated.
Concerns that the current ceasefire could fail and fighting could resume supported the Dollar and curbed demand for EUR/USD. Even so, recent price action remained consistent with an ongoing uptrend from the late March low.
We recall a similar period last year, around this time in 2025, when EUR/USD saw a strong rally based on diplomatic hopes with Iran. Despite the positive trend, significant geopolitical risk was building due to the US Navy’s actions in the Strait of Hormuz. This created a tense and uncertain backdrop for the dollar.
Options Strategy And Monitoring
That optimism proved short-lived, as historical data shows the pair reversed sharply, falling nearly 6% through June and July 2025 when the blockade’s economic impact became clear. The situation serves as a reminder of how quickly geopolitical events can override fundamental trends. We saw risk-off sentiment dominate markets for the remainder of that quarter.
Today, the Euro is strengthening for different reasons, primarily driven by a newly hawkish European Central Bank. Recent data shows Eurozone core inflation for March 2026 holding stubbornly at 2.9%, prompting markets to price in at least two ECB rate hikes this year. This contrasts with the Federal Reserve, which has signaled a pause in its own tightening cycle.
Given the memory of last year’s reversal, a cautious approach using options is warranted for capturing further upside. One could consider buying EUR/USD call options with a near-term expiry to benefit from the ECB’s momentum. However, purchasing protective put options or utilizing call spreads would be a prudent way to hedge against any sudden risk-off event, especially as implied volatility remains elevated around 8%.
Moving forward, we should closely monitor speeches from ECB officials for confirmation of their hawkish stance. Simultaneously, any developments in global shipping lanes or new diplomatic tensions could quickly shift sentiment against the Euro. This makes paying attention to both central bank policy and geopolitical headlines essential for navigating the weeks ahead.
